A Perpetuity Differs from an Annuity Because

question 9

Multiple Choice

A perpetuity differs from an annuity because:

• A)perpetuity cash flows vary with the rate of inflation.
• B)perpetuity cash flows vary with the market rate of interest.
• C)perpetuity cash flows are variable while annuity payments are constant.
• D)perpetuity cash flows never cease.
• E)annuity cash flows occur at irregular intervals of time.

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Definitions:

Cash

Refers to currency or assets that can rapidly be converted to currency, used by businesses for transactions and considered a current asset on the balance sheet.

Market Rate

The prevailing interest rate available in the marketplace for investments or loans of a similar risk and maturity profile.

Par Value

The face value of a bond or stock, assigned at the time of issuance, representing the minimum amount the security can be sold for.

Semiannual Interest

Interest that is calculated and paid twice a year, often used in the context of bonds and loans.